And why you’ll never see me using a cashback card
Albeit that there are some cashback cards with very attractive promotions, the overall value that cardholders can obtain lie overwhelmingly in favor of points rewards. This post will compare the two card types head to head in order to determine what card offers the most value.
Points vs Cash back: Value Comparison
As the name “cashback” suggests, the value is literally the amount of cash you get back from each purchase (1% cash back means you’ll get one cent back from each dollar spent).
On the other hand, points provide value in varying degrees. Points can range from a cash-equivalent system (Westjet dollars, Scotiabank points) whereas other flight programs (Aeroplan, Alaska, etc) will have fixed flight schedules to varying destinations. Due to this, the “true value” of a point can only be determined based on the flight/class that you’re flying in. This is especially prominent when you’re on premium cabins, where cash fares for the equivalent flight becomes exponentially more expensive (Think $10k+ for first class).
Spending Bonuses
Points cards generally offer a generous signup / minimum spend bonus for new users. For most cards, the spending requirement is typically around $1000-$1500 within the first 3 months of card approval. If you’re looking at the bonuses that American Express cards provide, the spend required is closer to $5,000-$7,000. The bonuses themselves can range anywhere from hundreds to thousands of dollars in value.
On the other hand, cash-back promotions offer an accelerated cash-back rate on certain categories for the first few months. The accelerated rate ranges from 4%-6% but is capped off to a certain spending amount.
As an example, let’s take a look at the TD First Class Travel Visa Infinite vs the TD Cash-back Visa Infinite. The TD First Class offers 80,000 TD rewards points after a spend of $1000 in the first 3 months; This is approximated at a value of around $400 when used on Expedia for TD. On the other hand, the TD cash-back offers 6% cash back in the first 3 months up to a total of $3500. With the same $1,000 spending on the TD cash back, the resulting return would be a mere $60. Even in contrast, when the user spends the full $3,500 on the cash back card, the yield would still only be $210.
Restrictions on Cash Back Payouts
It’s always good to read the terms and conditions of different cards; The terms on certain cashback credit cards may state that cashing out is done once a year on a certain month. This is even more crucial when you’re applying for a FYF product as you may have to fork over the annual fee for the second year based on the timing of your application. For example, the CIBC cashback card gives out their cashback in November; so if you applied for the card in October, you’ll lose most of next year’s cashback unless you pay the annual fee for the following year.
This is one of the aspects where point cards shine in comparison. For most travel rewards bonuses, the points are issued shortly after the minimum spend requirement is met. As such, you won’t have to deal with any ambiguous dates as to when your money will come back to you.
Flying in premium cabins
In the case of premium travel, having airline miles will allow travelers to fly in business or first class a lot faster than cash back cards will. With a cashback card, one would literally have to collect the equivalent in cash value to buy a business/first class flight outright; Something that would never happen given these flights usually cost anywhere from $3,000 to upwards of $20,000. By taking advantage of certain loyalty programs (Aeroplan, Alaska Miles, etc), travelers will be able to access these flights for a fraction of the price. Additionally, accumulating points bonuses from credit cards will further accelerate the process in comparison to any cashback promotion.
Flying on budget tickets
The only situation where cashback may become more appealing would be when there are flight deals that cost less than a fixed mileage flight. An example of this would be certain economy class tickets during the low season. Websites such as YYZDeals or Next Departure regularly provide updates on flight deals and mistake fares for those who are interested in travelling on a budget. Although there may be random stops and layovers, a little flexibility goes a long way. Tickets may cost as little as $600, which would require much less spending versus a fixed redemption on Aeroplan or any other fixed rate program. However, cash-equivalent point systems may still outshine a good cashback card. An example of this would be the Scotiabank Passport, which currently offers $300 in travel credits on any purchase made on the card after a mere $1,000 in spend. Alternatively, on a 2% cashback card, one would have to spend $15,000 for the equivalent in cash back.
At the end of the day, here`s what you need to know:
- You need to spend significantly less when meeting points bonuses compared to maximizing your cashback promotion
- Cashback credit cards may have inflexible cashing out periods
- If you’re looking to fly in business or first class, certain airline miles will bring significantly more value
- On budget tickets, cashback can be valuable, but there are also cash-equivalent points programs that can generate similar or greater value at a faster rate
Points Smart 